This document discusses how globalization and advances in networking technologies have impacted labor markets in Central and Eastern European countries. It describes how core economic regions benefit most from outsourcing and offshoring certain business functions to peripheral and semi-peripheral areas due to lower costs and transaction fees. Examples are given of companies that outsource customer service, software development and consulting work to countries like Estonia, Ukraine, Bulgaria, Romania, Czech Republic and Slovakia to take advantage of skilled labor pools and reduced expenses. Maintaining high-performance networks is important for minimizing transaction costs and maximizing the benefits of global outsourcing models.

1. Advantages for East European
countries by Internet labor
THE HISTORY OF SOCIAL NETWORKS
A presentation by Knut Linke, University of Latvia, at the My PHD
International Conference:
“Does place Matter? Central and Eastern Europe in the global
world of the 21. century”, 20-23 OCTOBER, 2011
SKALICA, SLOVAK REPUBLIC

2. Overview
 Globalization
 Core regions
 Periphery areas
 Semi-Periphery areas
 Outsourcing approaches
 Transaction costs
 Examples

3. Globalization
• Definition:
Compression of the world as a whole, involves the linking of activities
and the centralization of working places through computer
mediated interactions [1]
• New local and global business opportunities
• World System Theory by Immanuel Wallerstein
• Enhancement of the Dependency Theory [2]
• Asynchrony dependencies between the economics of core areas, the
periphery areas and the complexities of country development

4. Core regions
• Dividing the whole into core regions, with possible semi-
periphery and periphery [3]
• Core regions benefits most from the capitalist world
economy
• Built first in the modern century in northwestern Europe
within the areas of England, France and Holland
• Factors: strong central governments & extensive bureaucracies
• Ability to obtain control over international business and
networking for their goal to extract capital surpluses out of the
proceeded trades

5. Core regions - GAWV
• GAWV Index [4]:
• Alpha: London, Paris, Tokyo and New York, Chicago, Frankfurt,
Hong Kong, Los Angeles, Milan and Singapore.
• Beta: San Francisco, Sydney, Toronto, Zurich, Brussels, Madrid,
Mexico City, Sao Paulo, Moscow and Seoul.
• Gamma (Examples): Amsterdam, Dallas, Dusseldorf, Geneva,
Jakarta, Johannesburg, Prague, Taipei, Washington, Beijing,
Rome, Stockholm or Warsaw.

6. Periphery areas
• Areas without a strong focus of government or
which are settled in other states. From those
areas raw materials and labor practices were
provided to the core areas. The advantages for
the core is in this situation unequal trade
relations based on disadvantages in the
periphery areas as also salary differentials [3].

7. Semi-Periphery areas
• Between core and periphery a semi periphery area can be
established and exist.
• “These areas represented either core regions in decline or
peripheries attempting to improve their relative position in the
world economic system [3].”
 Czech, Poland, Slovakia or Hungary
• “Higher productivity in the core areas can be reached by increasing
the wealth in semi periphery areas. Networking technologies can
affect communication processes in a variety of ways like speeding up
communication and decrease costs for communication by bringing
the distance in communication on a zero level [4].”

8. Outsourcing
• “Outsourcing is the act of transferring some of an organization’s recurring
internal actives and decision right to outside providers”, a company is itself
able to contract recurring activities [5].
• Cross-border mergers and alliances become more important in the ongoing
globalization [6].
• Services can be provide decentralized and virtual (CSCW – Computer
Supported Cooperative Work)
• With the removing of local restrictions for cooperative working through Internet
this trend is additional supported. With this development, the working in and via
networks, is supported, which allows normal societies to support the work in
global networks through the Internet [7].
• Export of goods and service are a tremendous key value drive in the sector
of the GDP from some areas.

9. Outsourcing approaches
• “Think global, act local” – Theodore Levitt
• Professor at Harvard Business School
• Possible areas for outsourcing: customer service,
engineering, human resources, logistics, maintenance and
janitorial, manufacturing, sales and marketing,
administration, accounting or computer services [8].
• Outsourcing of: Out tasking (tasks), Selective Outsourcing
(group of tasks), Application Service Providing, Business
processes, Knowledge Process…

10. Global networks
• Global networks support the necessary communication
processes, which are "facilitated and sustained by an
underlying network of individuals, institutions, and
technologies that provide the means and mechanism for
formulating, exchanging, and interpreting information
and for creating the necessary linkages among these
activities". [9].
• Those underlying networks contain additional
components "which performs a function essential to the
communication process“ and provides the capabilities for
the network processes.

11. Global networks & Transaction
costs
• Capabilities are required to support the range of applications and
services which can be provided from the network. This includes
capacity, reach, and density for the communication speed, support of
possible communication models, infrastructure costs, versatility,
flexibility and accessibility in and to the network for increasing the
general functionality.
• Those capabilities influence the transaction costs in the network
• Transaction costs for a network in a national economy can influence
the success of an area. "High transaction costs not only reduce
economic returns; they also inhibit economic growth. In Fact, when
transaction costs become too high, markets cease to exist through a
lack of profitableness [10]”.

12. Transaction costs
Scale & Scope Location & Organization
of the market of Economic Activities
Transaction Costs
Social Norms
Geographic
Boundaries
Social Networks
Political
Prescriptions
Product and Process
Standards
IT-based Networks
Coping with transaction Costs by D. Linda Garcia
• Saving on transaction costs can also increase the issue of
bottlenecks in network.
• Key Performance Indicators are important for the
monitoring of transaction costs

13. Examples
• Arvato: Customer Service from Estonia, Ukrain, Bulgaria
or Romania.
• Gameloft: Complete software development in Romania
• Accenture: SAP Consulting from Czech Republic and
Slovakia
• Headquarters of several companies in Ireland
• Convergys, Vertex: International IT-Outsourcing

14. References
• [1] Mike Featherstone, Scott Lash: Global modernity’s, p. 35, Sage Publications, 1995.
• [2] Dirk Kläser: Aktuelle Theorien der Soziologie – von Shamuel N. Eisenstadt bis zur Postmodernen, Munich, 2005, p. 171.
• [3] Paul Halsall: Summary of Wallerstein on World System Theory, August 1997, 05/15/2011.
• [4] Peter J. Taylor, D. R. F. Walker, J.V. Beaverstock: Firms and their global service networks, In: Global Networks - Linked Cities,
Routledge, 2002, p. 98-101.
• [5] Maurice F. Greaver II: Strategic outsourcing: a structured approach to outsourcing decisions and initiatives, Amacom, 1999,
p.3-4.
• [6] Saskia Sassen: Locating Cities on a Global Circuit, In: Global Networks - Linked Cities, Routledge, 2002, p. 21 - 24.
• [7] Boris Holzer: Vom globalen Dorf zur kleinen Welt – Netzwerke und Konnektivität in der Weltgesellschaft, Department for
Sociology, Ludwig-Maximilians-University Munich, 2005
• [8] George Ackerhof: The 'Market for Lemons': Quantitative Uncertainty and the Market Mechanism, In: Quarterly Journal of
Economics 84, 1970, p. 488-500.
• [9] D. Linda Garcia: The Architecture of Global Networking Technologies, In: Global Networks - Linked Cities, Routledge, 2002, p.
40 - 57.
• [10] Steven M. Bragg: Outsourcing – A Guide to… selecting the correct business unit… negotiating the contract… maintaining
control of the process, John Wiley & Sons, 2006, p. 129 – 365.

15. THANK YOU FOR YOUR ATTENTION